Measuring Uncertainty about Long-Run Predictions

Long-run forecasts of economic variables play an important role in policy, planning, and portfolio decisions. We consider forecasts of the long-horizon average of a scalar variable, typically the growth rate of an economic variable. The main contribution is the construction of prediction sets with asymptotic coverage over a wide range of data generating processes, allowing for stochastically trending mean growth, slow mean reversion and other types of long-run dependencies. We illustrate the method by computing prediction sets for 10 to 75 year average growth rates of U.S. real per-capita GDP and consumption, productivity, price level, stock prices and population.